MW Feds ease up on stress tests, agree on need for bank-access fix

By Steve Gelsi

Bank stocks rise as KBW analysts praise 'less stressful' bank stress tests

More regulatory clouds parted over the banking sector on Thursday as analysts at KBW said this year's Federal Reserve bank stress tests should be "less stressful," as stocks in the sector moved higher.

KBW analyst David Konrad said this year's proposed Fed stress-test scenarios released late Wednesday are less demanding for banks.

"The assumptions appear less harsh than last year" in terms of lower market declines, less market volatility and less-threatening drops in employment, as well as lower impact to commercial and residential mortgages, Konrad said.

Coming out of last year's stress tests, several banks maintained beefed-up stress-capital buffers, which typically diverts money away from stock buybacks and dividends that benefit shareholders.

As requirements for stress-capital buffers drop, Goldman Sachs Group Inc. $(GS)$, Morgan Stanley $(MS)$ and M&T Bank Corp. $(MTB)$ are potential winners as they potentially pocket extra capital for stock buybacks or dividends, Konrad said.

On the other hand, $Bank of America Corp(BAC-N)$. $(BAC.SI)$ and JPMorgan Chase & Co. $(JPM)$ face "modest headwinds" from lighter stress-capital buffers, KBW said.

Shares of Goldman Sachs rose 2% on Thursday, while Morgan Stanley moved up by 3% and M&T Bank rose 1%.

JPMorgan Chase rose 1.2% and Bank of America moved up by 1.6%, while Wells Fargo & Co. $(WFC)$ rose 1.6% and $Citigroup Inc(C-N)$. (C) advanced by 3%.

The KBW Nasdaq Bank Index BKX moved up by 1.2% and the Financial Select Sector SPDR Fund XLF gained 0.7%.

Meanwhile, on Wednesday at a banking hearing on Capitol Hill, Sen. Elizabeth Warren, a Massachusetts Democrat, agreed with Republicans that too many people have been losing or have been unable to open up bank accounts.

Warren said the White House should address discriminatory practices by big banks, after President Donald Trump last month complained at the World Economic Forum in Davos, Switzerland, that banks were closing accounts held by conservatives.

At the Senate hearing, Warren said she was aware of thousands of consumers getting kicked out of their bank accounts.

Austin Anton, of the pro-industry Bank Policy Institute, said the industry is required to flag suspicious activity to avoid litigation or fines from regulators for allegedly having ties to criminal activity.

Conservatives have been complaining about diversity, equity and inclusion efforts by banks, as well as cautiousness by banks around handling cryptocurrencies, which have been embraced by Trump. Most banks won't accept bitcoin (BTCUSD) in deposits, for example.

Banks have been winning on the regulatory front as part of Trump's overall deregulatory push.

The president has yet to name a vice chair of supervision for the Federal Reserve after the recent departure of Michael Barr as the Fed's top banking cop. Former community banker and Fed board member Michelle Bowman is expected to take his place.

Barr had been pushing for higher capital requirements for banks, as part of the Basel III banking rules put in place after the 2008-09 financial crisis, but that effort has now been shelved.

Also read: Why bank stocks care that Michael Barr is stepping down as top Fed banking cop

-Steve Gelsi

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

February 06, 2025 14:13 ET (19:13 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.